LPC Rejects City and Suburban Hardship Claim

- City and Suburban Homes 2006

- After owners alterations, 2011.

City and Suburban Homes Company, First Avenue Estate
(429 East 64th and 430 East 65th Street)

May, 2014

The Landmarks Preservation Commission (LPC) voted unanimously that it did not agree with a developer’s request to demolish an Upper East Side landmark, in the first hardship application based on an economic argument in over 20 years. On May 20, the Commissioners decided, 7 – 0, that the owners of 429 East 64th Street/430 East 65th Street, within the landmarked City and Suburban complex, has not made their case that the rental apartment buildings could not generate a sufficient return.

The Conservancy testified on this issue in January 2012 at a public hearing. At that time, we questioned assertions related to projected rents and vacancy rates, among other issues. Elected officials, preservation and civic groups, building residents, and other members of the public also spoke out against the application, and members of the Landmarks Commission immediately began questioning the owners’ arguments. For over two years, the Commission repeatedly questioned the owners, and then questioned their responses. At the hearing, their rejection of the claims was unambiguous.

The Landmarks Law allows owners of for-profit buildings to apply for demolition under hardship criteria if their buildings cannot produce a 6% return. In lengthy explanations, the Commissioners found multiple reasons why they rejected this application.

The two buildings are part of a larger complex of 13, with many physical and administrative connections, and the LPC found that the finances of the entire complex should have been considered under the application. Even looking only at the two buildings in question, the Commissioners found that the owners had created a “self-imposed hardship” by warehousing vacant units both before and after landmark designation and by putting forth no efforts to lease the vacant units. One Commissioner sent her friends to try and rent an apartment in the buildings, only to be told that none were available, while the hardship application indicated over 100 of the 190 apartments were vacant. The Commissioners also blasted the argument that once renovated, the apartments could not be rented for more than $600 a month, calling it “not credible.”

The owners had asserted that the costs to restore the apartments would be extraordinarily high as they are walk-up buildings; and all materials would have to be brought in and removed up to five flights of steps; the Commissioners suggested using pulleys and window chutes. The Commissioners also found that the owners had not considered other sources of income from the building, from the sale of development rights to the renting storage space or installing cell phone towers.

This decision concludes the latest of several skirmishes over these buildings. The Conservancy supported landmarking the City and Suburban Homes, First Avenue Estates, when the entire complex was designated in 1990 because these model tenements represent a significant building type in the City. At that time, the Board of Estimate excluded the two buildings in question from the designation. They were designated in 2006, again with Conservancy support. The owners unsuccessfully sued the LPC, arguing that the buildings should not be landmarked; around the same time they altered the historic facades, covering them with pink stucco. The designation is based on the cultural significance of the buildings and was upheld.

At the hearing, residents and advocates cheered the decision. There was no response from the owners.

At a hearing on January 24, the Landmarks Conservancy testified that a request to demolish 429 East 64th Street/430 East 65th Street, within the landmarked City and Suburban complex on the Upper East Side, failed to demonstrate that these buildings do not generate a sufficient return. In the first hardship case based on an economic argument in over 20 years, the Conservancy questioned projected rents and vacancy rates, among other issues.

Elected officials, preservation and civic groups, building residents, and other members of the public also spoke out against the application, and members of the Landmarks Commission immediately began questioning its assertions.

The Conservancy supported landmarking City and Suburban Homes, First Avenue Estates in 1990 because these model tenements represent a significant building type in the City. At that time, the Board of Estimate excluded the two buildings in question from the designation. They were designated in 2006, again with Conservancy support.

The public hearing was one step in the hardship process. No vote was taken, and the Conservancy will continue to monitor this issue.

Read our testimony below.

January 24, 2012

STATEMENT OF THENEWYORKLANDMARKSCONSERVANCYBEFORETHENEWYORKCITYLANDMARKSPRESERVATIONCOMMISSIONREGARDING AN APPLICATION TO DEMOLISH 429 EAST 64TH STREETAKA 430 EAST 65TH STREET ON THEGROUNDSTHATTHEYGENERATE AN INSUFFICIENTECONOMICRETURN

Good day, Chairman Tierney and Commissioners. I am Andrea Goldwyn, speaking on behalf of The New York Landmarks Conservancy.

The City and Suburban Homes, First Avenue Estate are modest buildings, but these model tenements represent a significant building type in New York City’s history, which the Conservancy recognized when we supported designation of the entire complex in 1990 and of the “subject buildings” in 2006.

The application before you today, a request to demolish 429 East 64th Street and 430 East 65th Street based on insufficient economic return, is the first such case in over 20 years, and demands a serious and thorough review. The Conservancy’s Public Policy Committee has carefully considered the application materials, has met with the applicants, heard from the opponents, and visited the subject buildings to see the conditions first-hand. Based on this evaluation, we cannot support the application because we do not feel that the applicants have met their burden of proof.

The applicants have presented various scenarios with multiple data points in terms of projected rental income, projected vacancy rates, projected costs, all applied to the mathematical formula required by the Landmarks Law. However, within these scenarios, there are issues that we find unresolved, so we urge the Landmarks Commission to question the following assertions.

The first, and most striking, is the assertion found in the Cushman & Wakefield feasibility study that the projected average monthly market-rate rent for renovated units in the subject buildings would be $600. A key factor is the characterization of the units as inferior, very small, and “atypical to market norms.” Our Board and staff who visited the buildings found them in need of repair, but well within the range of what exists at often higher rents in Manhattan and the Upper East Side. According to Citi Habitat’s December 2011 Rental Market Analysis the Upper East Side’s market average rent at the end of 2011 was $3,296. (Studios $1,786; 1BR $2,384; 2BR $3,299; 3BR $5,713.)

We also question the suggested stabilized vacancy rate, which is presented at 10% in the C&W study. The applicants told us that while the vacancy rate rose for a brief time in the 2009 “test year,” it quickly rebounded to more a level more typical for Manhattan. The same Citi Habitats Report indicates that Manhattan’s overall vacancy rate declined from 1.34% to 1.27% between Dec 2010 and Dec 2011, and was 1.17% on the Upper East Side.

A related question is the proposed absorption rate of 51 months, which would lead to lease-up costs of $1,788,600. The applicants tell us that the 51 months is based on the need to renovate units before putting them on the market. Shouldn’t we then spread the renovation costs over 51 months instead of the single test year as the applicant proposes?

While the Project Consult report lists repairs required for all of the vacant apartments, we hope that the Commission will have the opportunity to visit each unit to verify, since the consultants, according to their report, inspected only 14 apartments. We also suggest that other, less expensive solutions that might be possible, such as substituting showers for the custom bathtubs listed in the report.

And we hope that the Commission will have the opportunity to visit apartments in other buildings on the same block. The proposed rents and vacancy rates in the subject buildings are in some cases based on those other buildings with the subjects considered less desirable. We have not seen those other buildings, but have been told that they are actually in some ways inferior to the subject buildings, with bathtubs in kitchens and toilets in closets.

Finally, we have worked with these owners before, and found them to be good stewards of other landmarked properties in their portfolio, but in this instance we have to question whether they are in fact operating the property “under reasonably efficient and prudent management,” so that these buildings are “capable of earning a reasonable return” as the Landmarks Law defines hardship. They significantly altered the building exterior as re-designation was being contemplated, at a cost estimated to be $450,000 at the time of the DOB permit application. These are funds that might have been applied, at least in part, toward the interior costs proposed today. And, based on photographs, it appears that they then left related interior work unfinished, only adding to today’s projected expenses.

While the Landmarks Law relies on a relatively simple mathematical formula to define hardship and while the applicants have provided reams of pages and multiple calculations as they try to reach that conclusion, they have instead raised questions. We hope that the Commission will take advantage of all available resources to examine the assertions presented in the application to determine whether they have in fact met that critical burden of proof. Based on what we have seen, both in the documents and at the building, they do not.